Credit to private sector dips by 4.2% in 2010
Banks’ credit to the private sector slumped by nearly 4.2 per cent in 2010 to record one of its worst periods in the history of the UAE’s financial sector as they remained risk-averse after years of boom lending.
But credit to the less risky government and other public sector institutions maintained their upward trend to indicate the country’s banks are also hit by slackening appetite for loans by the private sector.
Official data showed credit to the private sector by the UAE’s 23 national banks and 28 foreign units recorded negative growth in 2010 for the second year running after record growth during 2007-2008.
Lending to the private sector dipped by around 3.6 per cent in 2009 and plunged further by about 4.2 per cent in 2010, showed the figures by the central bank.
The decline was in sharp contrast with the previous two years, when credit to the private sector shot up by nearly 42.9 per cent in 2007 and 41.2 per cent in 2008.
From around Dh312 billion at the end of 2006, total bank credit to the private sector surged to nearly Dh446 billion at the end of 2007. It swelled further to nearly Dh630 billion at the end of 2008.
The situation was reversed in 2009, when credit dropped to about Dh607 billion and maintained its downward trend to reach Dh581 billion at the end of 2010.
The report showed business and industrial sector, the largest recipient of bank credit in the UAE, was the main victim of the credit slowdown in 2010 despite growth in 2009 and the previous two years.
From around Dh355 billion at the end of 2009, loans to this sector slumped to nearly Dh324 billion at the end of 2010.
Credit to financial institutions, including banks, increased from around Dh51 billion to Dh58 billion while lending to other recipients slipped down from nearly Dh198 billion to Dh196 billion in the same period.
By contrast, banks’ credit to the government grew by about 8.7 per cent through 2010 to around Dh99 billion at the end of the year from Dh91 billion at the end of 2009.
Growth extended a steady rise in the previous years when lending to the government soared by nearly Dh20 billion in 2009 and around Dh14 billion in 2008. Growth stood at nearly Dh11 billion in 2007.
Credit to other public sector institutions edged up to around Dh91 billion at the end of 201 from Dh89 billion at the end of 2009 and nearly Dh70 billion at the end of 2008. It ended 2007 at about Dh50 billion, according to the report.
It showed total domestic credit by the country’s 51 banks declined by nearly two per cent to Dh772 billion at the end of 2010 from Dh788 billion at the end of 2009. In 2009, total credit grew by 1.9 per cent while it jumped by 39 per cent in 2008 and around 38.5 per cent in 2007.
In recent comments, central bank governor Sultan bin Nassir Al Suwaidi said lending is picking up and expected better performance this year.
Slow lending caused by the 2008 global fiscal crisis and regional debt default problems has stifled performance by the UAE banking sector, the largest in the Arab world.
Balance sheets of 16 listed banks showed their net earnings dipped by 20.6 per cent to about Dh14.8 billion from nearly Dh18.7 billion in 2008.
In the first nine months of 2010, the combined net profits of 17 listed national banks slumped by around 9.6 per cent to nearly Dh15 billion from about Dh15.5 billion in the same period of 2009.
Profits remained almost unchanged through 2010 but are projected to be higher this year.
The slackening credit growth coincided with a hectic drive by UAE banks to build up loan loss provisions to a record high of more than Dh47 billion in January.
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